(This is a more detailed version of an article that was originally posted February 24, 2014)
On February 20, 2014, the IRS, DOL and HHS jointly released two separate sets of regulations on the 90-day waiting period limit under the Affordable Care Act (ACA): final regulations and new proposed regulations.
The final regulations generally finalize the provisions in the proposed regulations that were issued March 21, 2013, with minimal changes. The new proposed regulations provide clarity on the new “orientation period” allowed under the final regulations, by permitting a maximum one month orientation period in addition to the 90 day waiting period. The orientation period would begin on the date an employee starts working in an eligible position.
The general rule is a group health plan may not apply any waiting period (that is based solely on lapse of time) that exceeds 90 days. A “waiting period” is defined as the period of time that must pass before coverage for an employee or dependent (who is otherwise eligible to enroll under the terms of a group health plan) can become effective.
As long as an employee is offered coverage within the allowed time, the plan will not be considered in violation of the rules, even if an employee takes more than 90 days to actually elect coverage. If an employee or dependent enrolls as a late enrollee or special enrollee, any period before such late or special enrollment is not a waiting period.
The 90-day limit on waiting periods applies to both grandfathered and non-grandfathered plans, and to both insured and self-funded plans. State law can supercede the ACA 90-day limit, however, so long as it is consistent with the ACA. An example would be California state law (AB 1083), which limits waiting periods to 60 days for California insured plans and HMOs.
Exceptions to the Rule
Eligibility conditions that are not based solely on the lapse of a time period are generally permissible if they are specified under the terms of a group health plan, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. The regulations give examples of: 1) substantive eligibility conditions, 2) newly hired employees whose average hours cannot be determined up front, and 3) and cumulative eligibility conditions.
Substantive Eligibility Conditions
Substantive eligibility conditions are not based solely on the lapse of time, so they can result in a waiting period of more than 90 days. Substantive eligibility conditions must be specified in the governing plan document, and they are generally allowed if they are not designed to avoid compliance with the 90-day waiting period. Examples (in the proposed and final regulations) include: 1) being in an eligible job classification; 2) achieving job-related licensure requirements or certification; 3) meeting certain sales goals or 4) earning a certain level of commission. The 90-day waiting period does not begin until the substantive eligibility condition is met.
Important note: While a substantive eligibility condition that denies coverage to employees may be permissible under this provision, a failure by an applicable large employer to offer coverage to a full-time employee may still give rise to a penalty under the employer shared responsibility (ESR) provisions. For example, an employer may have to pay an ESR penalty for a commission employee who purchases coverage in an Exchange and receives a subsidy if the employee works on average at least 30 hours per week but is not eligible for coverage until the employee’s monthly sales or commission amount reaches a threshold dollar level.
Newly Hired Employees whose Average Hours cannot be Determined Upfront
The 2013 proposed rules also address the application of the 90-day limitation on waiting periods where eligibility for group health plan coverage is conditioned on an employee regularly working a specified number of hours per period (or working full time), and it cannot reasonably be determined at time of hire whether a newly-hired employee will be regularly working that number of hours per period. The ESR regulations (proposed in December 2012 and finalized in February 2014) refer to these employees as variable hour or seasonal employees. In such cases:
- The plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition, which may include a measurement period of between 3 and 12 months that begins on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date.
- In general, this time period will not be considered to be designed to avoid compliance if coverage is made effective no later than 13 months from the employee’s start date (plus the time remaining until the first day of the next calendar month, if the employee’s start date is not the first day of a calendar month).
Cumulative Eligibility Conditions
The third type of permissible eligibility conditions that are not based solely on the passage of time are called “cumulative” eligibility conditions. If a group health plan or health insurance issuer conditions eligibility on completion of a number of cumulative hours of service (which use more than solely the passage of a time period in determining whether employees are eligible for coverage), that requirement will not be considered to be designed to avoid compliance as long as the required hours do not exceed 1,200. Once the employee is eligible, he or she must be offered coverage within 90 days. This provision is designed to be a one-time eligibility requirement only; the proposed regulations do not permit re-application of such a requirement to the same individual each year.
Final Waiting Period Regulations
The final regulations (February 2014) implement the regulations that were proposed in March 2013 (discussed above) without much change, plus include two additional provisions.
Overview of the Provisions that Remain the Same
- The 90-day maximum waiting period is calculated by counting all calendar days, including weekends and holidays. Coverage must be offered no later than the 91st day; this does not mean the first of the month after 90 days of employment. Even if the 91st day is a weekend, coverage must be available on or before that day.
- If an employee is eligible on or before the 91st day but is not enrolled by the 91st day because the individual does not timely elect coverage, the employer is not held in violation of the 90-day rule.
- If an individual enrolls as a late or special enrollee, any days before the enrollment date are not counted as part of the waiting period.
- The waiting period does not begin until the employee is in a benefits-eligible position. The employer can define the eligibility criteria. the final regulations confirm the permissible eligibility criteria listed above and in the proposed regulations, such as: meeting certain sales goals, earning a certain level of commission, or successfully completing required certification or a training period.
- The employer generally can require employees to complete a minimum number of hours before becoming eligible for coverage, but the requirement cannot exceed 1200 hours.
- The maximum waiting period rules do not require any employer to offer coverage to any particular category of employees. They only limit the maximum period of time that an otherwise eligible employee can be required to wait before being eligible for coverage.
Overview of the Two New Provisions
Employers can impose a “reasonable and bona fide employment-related orientation period.” The new proposed regulations (issued the same day as the final regulations) clarify the maximum allowable length of any reasonable. and bona fide orientation period.
Employees who are terminated and rehired can be treated as new employees and thus be subject to a new waiting period. The same applies to employees who transfer from benefit-eligible to non-eligible positions and then back to eligible positions.
Details of the New Orientation Period
An employee or dependent is otherwise eligible to enroll in a plan when he or she has met the plan’s eligibility conditions. As noted above, the old proposed regulations allowed for substantive eligibility conditions, cumulative eligibility conditions, and a 3-12 month pre-eligibility period for variable hour and seasonal employees. The final rules add an additional and new category of eligibility conditions: an employer can require the satisfaction of a reasonable and bona fide employment-based orientation period.
The new proposed regulations detail how a permissible orientation period would work. During an orientation period, the Departments envision that:
- An employer and employee could evaluate whether the employment situation was satisfactory for each party; and
- Standard orientation and training processes would begin.
The new proposed regulations provide that one month is the maximum allowable length of any reasonable and bona fide employment-based orientation period. This one-month orientation period begins on the day an employee starts working in a position that is otherwise eligible for coverage. It is determined by adding one calendar month and then subtracting one calendar day. If there is not a corresponding date in the next calendar month upon adding a calendar month, the last permitted day of the orientation period is the last day of the next calendar month. For example:
- If an employee is hired February 28, the last day of the orientation period would be March 27 (one calendar month minus one day).
- If an employee is hired January 30, however, the last day of the orientation period would be February 28 (or February 29 in leap year).
If a group health plan conditions eligibility on completing a reasonable and bona fide employment-based orientation period, the eligibility condition will comply with the 90-day waiting period limitation if the orientation period does not exceed one month and the maximum 90-day waiting period begins on the first day after the orientation period.
Details Regarding Employees who are Terminated and Rehired
The final regulations provide that a former employee who is rehired may be treated as newly eligible for coverage upon rehire. Therefore, a plan or issuer may require that individual to again meet the plan’s eligibility criteria and satisfy the plan’s waiting period, if reasonable under the circumstances. The requirement would not be reasonable if the termination and rehire is a subterfuge to avoid compliance with the 90-day waiting period limitation.
The same analysis would apply to an individual who is in a benefits-eligible position, moves to a job classification that is ineligible for coverage under the plan but then later moves back to an eligible job classification. An example would be a full-time office employee who is in a benefit-eligible position, moves to a part-time outside sales position that is not benefits-eligible, and six months later is re-hired in another full-time position that is benefits eligible. The regulations do not address whether it would be reasonable to require such an employee to again complete a one-month training or orientation period. If the employee is re-hired into a similar (or the same) position he/she previously had, it might be seen as a subterfuge to again require that the employee complete a one-month orientation period before the waiting period begins. However, if the employee is hired into a new benefits-eligible position, such a requirement might be reasonable.
For 2014 a plan will be in compliance if it complies with either the 2013 proposed or the 2014 final regulations. This is because the final and new proposed regulations are effective for plan years beginning on or after January 1, 2015, and the March 2013 proposed regulations were effective for plan years beginning on or after January 1, 2014.
HIPAA Certificates of Creditable Coverage
The final regulations also clarify that all plans must continue to provide HIPAA Certificates of Creditable Coverage until December 31, 2014. The ACA prohibition on plans imposing pre-existing conditions limitations applies as of the first day of the 2014 plan year (not as of January 1, 2014). This means a plan with a December 1 start date could continue to impose pre-existing conditions limits until December 1, 2014. Thus, individuals who lose coverage in 2014 might still need a HIPAA Certificate from their prior plan in order to receive credit (for their prior period of coverage) from their new plan.
Link to the Regulations
Both the final and proposed rules will be published in the Feb. 24, 2014 edition of the Federal Register and can also be viewed at the links below.
Notice of proposed rulemaking, http://www.dol.gov/opa/media/press/ebsa/20140220-redfeg2.pdf.